FAQ for DPP®

FAQ for DPP®

		Program Description
		DPP® Consumer Center
		DPP Advantage® Consumer Center
		Participating Institutions

2012 Downpayment Plus® Program
Frequently Asked Questions

1. What is Downpayment Plus?

2. Who is eligible to receive a DPP grant?

3. What is the maximum grant amount that may be awarded to eligible borrowers?

5. How does a borrower obtain a grant?

6. What are the eligible and ineligible uses of grant funds?

7. Can the homebuyer receive cash back at closing?

8. How is household income determined?

9. What types of properties are eligible?

10. Are there limitations on the type of first mortgage?

11. How is household size determined?

12. What are the lender requirements for home buyer counseling?

13. Under what circumstances can counseling costs be paid by the Downpayment Plus grant?

14. Can a mortgage securing the promissory note/repayment agreement for a Downpayment Plus-funded grant be subordinated to a home equity loan at a later date?

15. What is the applicable retention period for the grant?

16. What happens to the junior mortgage if the borrower refinances the first mortgage?

17. Under what circumstances must the grant be repaid?

18. How is the grant amount to be repaid calculated?

19. Is there a limit on the number of grants one member institution can make?

20. Must the FHLBC member hold the DPP recipient's first mortgage in their portfolio?

21. If the homebuyer is separated from their spouse, should the spouse be included in the household size and income calculation?

22. How should non-occupying co-signers and non-occupying co-borrowers be treated when calculating household income?

23. Who should be included on the DPP retention agreement?

24. Are properties located outside Illinois or Wisconsin eligible?

Downpayment Plus® Program
Questions & Answers

1. What is Downpayment Plus?
Downpayment Plus ("DPP®") is a down payment and closing cost assistance program for very low-, low- and moderate-income homebuyers, funded by the Federal Home Loan Bank of Chicago ("FHLBC"). Funds are available to FHLBC member financial institutions in Illinois and Wisconsin. The assistance provided is in the form of a grant paid on behalf of the borrower at the time the borrower closes on mortgage financing with a participating FHLBC member financial institution.

2. Who is eligible to receive a DPP grant?
The program is available to homebuyers with a combined annual household income at or below 80% of the median income of the area where the property is located, adjusted for family size. The borrower must contribute $1,000 toward the purchase of the home. The borrower(s) must also complete a homebuyer or homeowner counseling program prior to receiving grant funds, and sign a certificate of eligibility that certifies household income. To see if you may qualify, please use our "Do You Qualify" web tool..

ITIN holders who have filed Federal Income Tax returns for at least the two preceding years, who are able to document consistent earning, and who have met the borrower requirements listed above are eligible to receive assistance from the DPP program. Providing DPP assistance to ITIN holders is at each member's discretion. ITIN holders whose income is used to qualify the household for the first mortgage financing must meet the FHLBC's ITIN requirements.

3. What is the maximum grant amount that may be awarded to eligible borrowers?
The maximum grant is $8,000 per household. DPP may not be used with other AHP subsidies for down payment, closing cost assistance, or homeownership counseling costs for the same borrower in the same transaction.

4. How does a FHLBC member institution participate in the DPP Program?

Any member institution of the FHLBC can participate in the program. Members should enroll with the program administrator for the state in which they are headquartered.

Illinois: Illinois League of Financial Institutions 1-800-237-1936 www.ilfi.org
Wisconsin: Wisconsin Partnership for Housing Development 1-888-318-4486 www.wphd-dpp.org

To participate, member institutions enter into a Program Agreement with the program administrator and the FHLBC. Participating members pay an annual $100 participation fee. One Program Agreement and one annual fee will allow members to participate in both the DPP and the DPP Advantage® Programs.

Members are also required to pay a non-refundable $50 reservation fee for each homebuyer for which they submit a DPP reservation request and a $125 closing fee for each homebuyer that receives a DPP grant. The DPP reservation and closing fees cannot be passed through to the homebuyer.

A requirement of the DPP Program is that the participating member must either originate or fund the homebuyer's first mortgage loan.

The program administrators will supply participating members with procedures and required documents. After the member disburses grant funds on behalf of the borrower and forwards the required documents to the program administrator, the FHLBC will reimburse the member by depositing the funds in the member's DID account. The FHLBC will notify the member and the program administrator when funds are disbursed.

5. Must the FHLBC member hold the DPP recipient's first mortgage in its portfolio?

The FHLBC member is not required to hold the DPP recipient's first mortgage loan in its portfolio. Members should check with the secondary market investor as to its requirements for purchasing first mortgage loans where there is a second lien on the property from a down payment assistance grant.

Though the FHLBC member may elect to have a servicing agent service the DPP lien for it, the member may not transfer the DPP lien to another party without the FHLBC's prior express written consent.

6. How does a borrower obtain a grant?
The Borrower:

	Applies for first mortgage financing with a participating member financial institution. A list of participating member institutions can be obtained by contacting the program administrators (refer to Question 4);
	Provides an executed purchase contract for the property and evidence of income eligibility;
	Completes homebuyer counseling prior to closing; and
	Makes the required $1,000 contribution to the purchase transaction.

The FHLBC Member:

	Determines that the borrower is income-qualified for the program;
	Makes a grant reservation with the program administrator and receives confirmation from the program administrator that the reservation is approved;
	Ensures that the borrower successfully completes a comprehensive homebuyer counseling program prior to closing;
	Ensures that the borrower meets the required $1,000 contribution to the purchase transaction;
	Disburses the grant funds at closing when the first mortgage funds are disbursed;
	Ensures the home is subject to a deed restriction or other legally enforceable retention agreement or mechanism meeting DPP requirements; and
	Forwards required documentation to the program administrator.

7. Is there a limit on the number of grants one member institution can make?

For 2012, there is a member cap of $400,000. The funds are made available on a loan-by-loan, first-come/first-served basis until the DPP program allocation is exhausted. Funds accessed under the DPP Advantage Program will not be applied toward the $400,000 member maximum for the 2012 DPP Program.

8. What are the eligible uses and ineligible uses of DPP grant funds?
Eligible Uses:

	Down payment and closing cost assistance
	Escrow reserves deposited with the lender
	Eligible rehabilitation costs directly associated with acquisition (refer to DPP Eligible Rehabilitation Guidelines)
	Homeownership counseling costs if they meet eligibility requirements (refer to Question 19)

Ineligible Uses:

	More than $250 cash back to the homebuyer at closing (refer to Question 9)
	Reimbursement of earnest money, deposits, or costs paid outside of closing (in excess of above-mentioned $250 cash back)
	Interest rate write-down on mortgage
	Payment of non-housing-related costs. Non-housing-related costs include, but are not limited to, debt collections, credit card bills, child support payments, and federal or state income taxes
	Payment of property taxes or utility bills incurred by seller, or other expenses unrelated to the purchase transaction that are owed by the seller
	Pre-paid life insurance
	Use with any other AHP subsidy for the same borrower in the same transaction
	Payment of member-required DPP reservation or closing fee
	Fees for homebuyer counseling provided by the member institution

9. Can the homebuyer receive cash back at closing?
A homebuyer may receive up to $250 cash back at closing. Any subsidy exceeding the amount that is needed at closing for closing costs and the approved mortgage amount may be applied as a credit to reduce the principal of the mortgage loan or as a credit toward the household's monthly payments on the mortgage loan. The grant amount will be reduced by any ineligible cash to the borrower at closing. Any cash back over $250 will be deducted from the member's reimbursement. Any cash back to the homebuyer will be deducted from the homebuyer's contribution amount in determining if the $1,000 contribution requirement is met.

10. How is household income determined?
Income eligibility is based on the household's projected annual income. Members must use the FHLBC Income Calculation Guidelines posted on the program administrator's website to determine a household's annual income. The income of each household member age 18 years and older is included in the household's total income. Please contact the program administrator if you have questions about calculating a household's income.

11. How is household size determined?
Household size is based upon the number of people who will reside in the home being purchased. Divorced or separated borrowers who have joint custody of their children should include the children in their household count, even though the children may only live in the household on a part-time basis. Borrowers who do not have custody should not include the children in their household count. Full-time students who are considered dependents and are not living at home while attending school should be included in the borrower's household count.

12. If the homebuyer is separated from their spouse, should the spouse be included in the household size and income calculation?
Separated borrowers are not required to include their spouse's income if the separation is legal or if they have been separated for 12 consecutive months or longer. Any financial support provided by the separated spouse to the homebuyer should be included as part of the homebuyer's income. If the borrower is not legally separated and the separation has been for less than 12 months, the spouse should be included in the household size and their income included in the household's income. At the FHLBC's discretion, exceptions may be granted based on individual circumstances, e.g., the spouse has moved to another country and is providing no financial support to the household.

13. Are non-occupying co-signers or non-occupying co-borrowers allowed? If so, how should non-occupying co-signers and non-occupying co-borrowers be treated when calculating household income?
A co-signer on a loan agrees to be legally responsible for a debt should the borrower default. They are generally not on the title and they do not have an ownership interest in the property. The FHLBC does not require that their income be included in the household income unless they are assisting the borrower in making monthly loan payments or regularly providing funds to the borrower to supplement the borrower's household income.

A co-borrower is on the title and is considered to have an ownership interest in the property. Transactions including non-occupying co-borrowers are not eligible for a DPP grant.

14. Who should be included on the DPP retention agreement?
All borrowers and co-borrowers must be included on the DPP retention agreement or mechanism. Any individual(s) who will be on the title to the property, even if not a borrower or a co-borrower on the first mortgage, must be included on the DPP retention agreement and must sign the DPP Disclosure Statement.

15. What types of properties are eligible?
Owner-occupied one or two unit properties are eligible for grants. The property must be used as the borrower's/grant recipient's primary residence. The property can be attached, detached or a condominium. Manufactured homes titled as real estate are eligible.

Grant funds may also be used to assist borrowers who convert a contract or contract for deed to a regular mortgage loan. Borrowers will need to make their $1,000 contribution at the time the contract is converted.

16. Are properties located outside Illinois or Wisconsin eligible?
A property that is not located in Illinois or Wisconsin is eligible if it is in the primary service area of the FHLBC member. Members issuing grants on properties located outside of Illinois and Wisconsin should work with their legal counsel to draft retention documents that meet the laws of the state in which the property is located, in addition to the requirements of the AHP regulations. It is the member's responsibility to ensure that the retention documents are legally enforceable in the state in which the property is located.

17. Are there limitations on the type of first mortgage?

	Home purchases financed with interest-only first mortgages are not eligible for the program.
	Lenders may use a wide range of mortgage programs, including conventional fixed or adjustable rate, HUD Section 184, FHA*, VA, or IHDA and WHEDA, provided the loan term is a minimum of 5 years. On adjustable-rate mortgages, the initial interest rate lock period must be a minimum of 5 years.
	The rate of interest, points, fees, and any other charges for all loans made in conjunction with the DPP subsidy shall not exceed a reasonable market rate of interest, points, fees, and other charges for loans of similar maturity, terms, and risk.
	The grant can be combined with other federal, state and local grants or loans, such as HOME funds.

*Homes with FHA loans require a special retention agreement; FHLBC must hold the lien, and the member is required to service the lien. Additionally, the member must provide a copy of the recorded retention agreement to the FHLBC. Note: Use of FHLBC grants with an FHA loan is restricted to the Downpayment Plus Program. AHP competitive grants are not currently approved by HUD for use with FHA loans.

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18. What are the lender requirements for homebuyer counseling?
The lender is required to certify that the borrower has completed a homebuyer counseling program provided by, or based on one provided by, an organization recognized as experienced in homebuyer or homeowner counseling.

Counseling education must include comprehensive financial literacy education, including information that alerts borrowers to potential predatory lending practices. The level of required counseling is based on the homebuyer(s) credit score. Contact the Illinois League of Financial Institutions or the Wisconsin Partnership for Housing Development for details.

If the FHLBC member provides the counseling, a fee cannot be charged for this service. If the member charges a fee, the DPP reimbursement will be reduced accordingly.

19. Under what circumstances can counseling costs be paid by the DPP grant?
Counseling costs may be paid with the DPP grant if:

	The costs are incurred in connection with counseling provided by an organization other than the member institution to homebuyers who actually purchase a DPP assisted unit; and
	The cost has not been covered by another funding source, including the member; and
	The cost to be covered by the DPP grant does not exceed $650 per household; and
	The cost is identified on the settlement statement (HUD-1).

20. What is the applicable retention period for the DPPgrant?
Grants are subject to a 60-month retention agreement to ensure that the property is retained as affordable housing. The retention period commences on the date the loan is closed. If the grant recipient owns the home for the full term, the grant is totally forgiven at the conclusion of the retention period. The member is required to record a lien on the property for the amount of the grant. The member is responsible for monitoring the lien and releasing the lien at the end of the 60-month retention period.

21. Can a mortgage securing the promissory note/repayment agreement for a DPP grant be subordinated to a home equity loan at a later date?
A mortgage used to secure the promissory note/repayment agreement for a DPP grant can be subordinated to a home equity loan.

22. What happens to the junior mortgage if the borrower refinances the first mortgage?
The lender has a number of options and can choose one of the following:

	Subordinate the junior mortgage that secures the grant to the refinanced first mortgage. No subsidy would have to be repaid.
	Transfer the retention agreements to the new lender on the same terms and timetable. The new lender must be a member of the FHLBC and execute a Program Agreement with the FHLBC to ensure repayment. No subsidy would have to be repaid.
	If the homeowner chooses not to maintain the junior mortgage, collect the unforgiven portion of the grant from any net gain realized on the refinance.

The member may not prohibit the borrower from refinancing the first mortgage during the retention period or refuse to subordinate the junior mortgage securing the grant. The member also may not require the borrower to maintain the retention agreement or itself refuse to maintain a retention agreement after the refinancing.

23. Under what circumstances must the DPP grant be repaid?
The borrower must repay a pro-rata portion of the grant from any net gain realized in any of the following circumstances:

The borrower sells the property prior to the end of the retention period. Net gain will be calculated based on the FHLBC's definition of net gain at the time of sale of the property. Repayment is waived if the borrower realizes no net gain on the sale or if the buyer's household income is at or below 80% of AMI at the time of sale of the property. Upon the sale to a very low-, low-, or moderate-income buyer, the retention agreement terminates, and is not assumed by the buyer.

The mortgage is refinanced, prior to the end of the retention period, with a net gain and the retention agreement no longer applies to the property. The obligation to repay any subsidy is terminated if the property is refinanced without a net gain.

The amount of repayment cannot exceed the amount of net gain realized by the borrower on the sale or refinance.

A Repayment Worksheet is available on the FHLBC's website at www.fhlbc.com. Chick on "Community Investment," and then "AHP/DPP Repayment Calculator" to access the Repayment Worksheet.

The FHLB of Chicago must be given notice of any sale, refinancing, foreclosure, deed in lieu of foreclosure, or assignment of an FHA-insured mortgage occurring prior to the end of the retention period. In the case of a foreclosure or conveyance of the property to the first mortgage lender by a deed in lieu of foreclosure, the obligation to repay any subsidy is terminated. Additionally, the obligation is terminated upon the death of all borrowers or when an FHA-insured mortgage is assigned to the Secretary of the U.S. Department of Housing and Urban Development. (Refer to Question 24.)

24. How is the amount of the DPP grant to be repaid calculated?
The grant is forgiven on a pro rata basis over a 60-month period. Forgiveness of the grant is based on the number of full months the home is owned. A month is calculated from the exact date of the loan closing to the corresponding date one month later. No forgiveness will be recognized for partial months.

	In the case of a sale, a pro rata share of the grant shall be repaid to the FHLBC from any net gain (as defined by the FHLBC at the time of sale) realized upon the sale of the unit, unless the unit is sold to a purchaser with very low, low, or moderate income.
	In the case of a refinancing, a pro rata share of the grant shall be repaid to the FHLBC from any net gain realized unless the unit continues to be subject to a legally enforceable retention agreement as permitted under the DPP Program.
	In the case of a foreclosure, deed in lieu of foreclosure, or assignment of an FHA-insured mortgage to HUD, the obligation to repay any subsidy is terminated. Evidence documenting the foreclosure, deed in lieu of foreclosure, or assignment must be provided to the FHLBC. Any cash out to the borrower must be approved by the FHLBC in advance of the foreclosure or deed in lieu of foreclosure.

For assistance calculating the amount of repayment, please refer to the Repayment Worksheet at www.fhlbc.com. Click on "Community Investment" and then AHP/DPP Repayment Calculator to access the Repayment Worksheet.

25. Can members sell REO properties in their portfolio using DPP assistance? Are there any additional requirements?
Members may sell qualifying REO properties in their portfolio using DPP assistance. Members must obtain an independent appraisal of the property performed by a state-certified or licensed appraiser (within 6 months of closing date), and the sales price may not exceed the appraised value. All other DPP Program requirements must be met.

"Downpayment Plus", "DPP", "Downpayment Plus Advantage", "DPP Advantage" and "MPF" are registered trademarks of the Federal Home Loan Bank of Chicago.

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